Pensions in Spain

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Pensions in Spain consist of a mandatory state pension scheme, and voluntary company and individual pension provision.

Mandatory state pension scheme[edit]

The state pension scheme is part of the Social Security system in Spain. There are two categories of pension in Spain: contributory and non-contributory. The pensions system is financed by a payroll tax on salaries. The employee pays 4.7% of his/her salary while employers must pay the equivalent of 23.6% of an employees salary into the scheme.[1]

Non-contributory pension[edit]

Non-contributory means-tested pensions[2] are targeted at low-income households and the disabled. Beneficiaries must not have been contributory members of the Social Security system during their working life. In 2000, beneficiaries of non-contributory pensions was 471,275 pesetas.

In 2010 in order to qualify the beneficiary may not have a monthly or annual income equal to or greater than the non-contributory pension of €339.70 per month (€4,755 per annum). Incomes of any persons living with the applicant are taken into account when deciding eligibility.[3] In 2012 the pension was raised to 357.70 euros a month. If the pension was claimed directly by the person then 2 additional months pension are added throughout the year to make it a total of 14 months a year of pension. If the disabled person was claimed by a parent or guardian then there are only 12 months of pension a year. Both are the same amount each month, but the total for the entire year is much more if claimed by the disabled person compared with being claimed by the parent or guardian.

Contributory pension[edit]

The contributory retirement pension (Pension por Jubilacion Ordinaria) represents the main source of retirement income for approximately 8.75 million pensioners in Spain.[4] In 2010 the average pension was 906 euros per month. Contributory retirement pensions in Spain are the second highest (as % of final salary) in Europe after Greece and amount to approximately 81% of final salary levels.[5] While the social security system collected 80Bn€ in contributions in 2010 it paid out 82 Bn€ in pensions. In January 2011 the government, employers and trade unions agreed on a series of reforms that will increase the retirement age by 2 years from 65 to 67 years.[6] The new minimum age will come into effect in 2027.

Private pensions[edit]

Private pensions in Spain generally consist of individual pensions and collective pensions (divided into associative and company schemes). Approximately 50% of the population are covered by one or both types.[7]

Introduced under the Law on Pension Plans and Funds in June 1987, private schemes had assets totaling 7% of GDP in 2010. The schemes benefit from tax subsidies whereby individuals can contribute up to 8,000€ per year free of income tax into either collective or individual schemes. By 2009 approximately 8 million people had Individual Pension Plans and 2 million people were covered by company pension plans.[8] The assets of Individual Funds amounted to about 53 Bn€ while Company Funds had assets of about 3 Bn €.

Social Security Reserve Fund[edit]

The Social Security Reserve Fund was created in 2000 with the aim of investing current Social Security surpluses in order to finance future State Pension Scheme shortfalls. It was created as one of the recommendations of the tri-partite Toledo Pact of 1995 between government, employers and trade unions.[9] In 2009 the fund amounted to 60 Bn€[10] and in 2010 assets had increased to 64 Bn€.[11]

Proposed reform[edit]

The Government of Spain has approved a reform aimed at reducing pension spending by about 3.5% of GDP by 2050, as part of austerity measures proposed by Prime Minister Jose Luis Rodriguez Zapatero. The key features of the reform are:

  • Retirement age: To increase from age 65 to 67 over the period 2013-27.
  • Earnings record: Gradual lengthening of the period used to calculate full pension benefits from 15 to 25 years.
  • Contribution years: Calculation on the basis of monthly payments rather than rounding to the next full year as prior to the reform; increase from 35 to 37.
  • Percentage of full pension received: Now proportional to the numbers of contribution years; starting from 50% for careers of 15 years to 100% for careers of 37 years.
  • Early retirement: Postponement from 61 to 63, with limited eligibility; it will only be possible after 33 contribution years rather than 30.
  • Voluntary work extension: Bonuses of 2%, 2.75% and 4% for each additional year worked for careers below 25 years, between 25 and 37 and over 37 respectively.

The reform is still awaiting approval from parliament.[12]

References[edit]